7-Hindsight-Bias-reporting000000000.pptx

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1. HINDSIGHT BIAS

2. Hindsight bias is a psychological phenomenon in which one becomes convinced they accurately predicted an event before it occurred. DEFINITION: Hindsight bias is also known as the “knew-it-all-along” phenomenon, or creeping determinism.

3. EXAMPLES OF HINDSIGHT BIAS IN EVERYDAY LIFE If a meal turns out poorly, people may claim they knew the recipe was a disaster from the beginning, even if they were enthusiastic about it. If it rains unexpectedly, people may say they “could see it coming” even if they didn’t check the forecast. If you watch a sports game and your team loses, you might think that you saw the loss coming all along, even though you were uncertain about the outcome during the game 3

4. HINDSIGHT BIAS IN BUSINESS EXAMPLES: After a businessman loses his money on a risky investment, he might think they should have known it was a bad idea, even though they had no way of predicting the outcome at the time. After a market crash, investors often claim they saw it coming, even though they may have been as surprised as everyone else at the time.

5. ADVANTAGES OF HINDSIGHT BIAS LEARNING AND IMPROVEMENT By reflecting on past events, such as past investment decisions and believing we could have predicted the outcomes, we can identify areas where we could improve our investment strategies, judgement and decision-making. CONFIDENCE BOOST Hindsight bias can provide a sense of satisfaction or accomplishment, as it reinforces the belief that we are capable of understanding complex situations. In business, believing we accurately predicted past market movements can boost our confidence and willingness to take calculated risks. 3. TEAM COHESION - Shared hindsight bias can foster a sense of camaraderie and shared understanding among team members. 5

6. DISADVANTAGES OF HINDSIGHT BIAS OVERCONFIDENCE AND RISK-TAKING Hindsight bias can lead to overconfidence in our ability to predict future market movements, leading to excessive risk-taking 2. REDUCED LEARNING If we believe we accurately predicted past outcomes, we may be less likely to learn from our mistakes and adapt our investment strategies. IMPAIRED DECISION-MAKING Hindsight bias can distort our perception of past events, making it difficult to make informed decisions about future investments. 4. EMOTIONAL INVESTING Hindsight bias can lead to emotional investing, where we may make decisions based on regret or a desire to avoid past mistakes rather than on objective analysis.

7. HOW TO AVOID HINDSIGHT BIAS RECOGNIZE THE BIAS Understand that hindsight bias is a common cognitive distortion SEEK OUT COUNTERFACTUAL INFORMATION Consider alternatives Avoid selective recall USE OBJECTIVE DATA - Rely on facts CONSIDER MULTIPLE PERSPECTIVES Seek diverse input PRACTICE MINDFULNESS Stay present Avoid emotional biases CONDUCT POST-MORTEM ANALYSES Evaluate decisions Learn grom mistakes 7

8. thank you